CRPC EXAM ACTUAL EXAM 180 QUESTIONS
AND CORRECT DETAILED ANSWERS WITH
RATIONALES (VERIFIED ANSWERS) |ALREADY
GRADED A+
During retirement, John wants to receive $50,000 at the end of each year for the rest
of his life. To calculate the amount that he will need to save, you need to solve for:
a. annuity due- set calculator at beginning
b. annuity due- set calculator at end
c. ordinary annuity- set calculator at beginning
d. ordinary annuity- set calculator at end - ....ANSWER...d. ordinary annuity- set
calculator at end
RATIONALE: You do need to set the calculator in END mode and solve for ordinary
annuity. If this were asking you to solve for an annuity due (where payments occur at
the beginning of the period), you would set calculator for BEG.
Mary wants to retire the first of next year. She wants to receive monthly retirement
income payments on the first day of each month. To solve the amount of capital
required to provide her the income she wants, you need to solve for
a. annuity due- set calculator at begin
b. annuity due- set calculator at end
c. ordinary annuity- set calculator at begin
d. ordinary annuity- set calculator at end - ....ANSWER...a. annuity due- set
calculator at begin
RATIONALE: To solve this problem, you would need to solve for annuity due, and
set the calculator at begin.
John wants to have $1 million in his retirement fund when he retires in 25 years.
Assuming that he earns 11% and inflation is at 3%, how much does John need to
save on a level basis at the end of each year?
a. $7,874
b. $8,740
c. $13,131
,d. $14,151 - ....ANSWER...b. $8,740
Set calculator to END mode, 1 payment per year, and C/ALL
Keystrokes:
1000000, FV
25, N
11 I/YR
PMT Solution: $8,740
Notice that the inflation rate does not come into play here because the question
notes that John will be saving on a level basis.
Mary wants to have a retirement income of $60,000 protected against 3% inflation.
She assumes that she will earn 9%, and wants to have the income for 30 years. How
much capital will be required to provide Mary this much income at the first of each
year? (Set your calculator for four decimal places.)
a. $616,419
b. $671,897
c. $841,589
d. $890,589 - ....ANSWER...d. $890,589
Set calculator to BEG mode, 1 payment per year, and C/ALL
Because the problem indicates that Mary want her income to be protected against
inflation you will use the inflation-adjusted rate of 5.8252% [((1.09 ÷ 1.03) - 1) × 100
= 5.8252].
Keystrokes:
60000, +/-, PMT
5.8252, I/YR
30, N
PV Solution: $890,589
Margaret needs an annual retirement income of $48,000 protected against 2%
inflation. You are to assume that she will earn 8%, and wants to have the income for
25 years. How much capital will be required to provide Margaret this much income at
the first of each year?
a. $512,389
b. $553,380
c. $620,521
d. $657,022 - ....ANSWER...d. $657,022
When gathering data during the retirement planning process, financial goals should
be quantified in dollar amounts and which of the following?
a. established time frames
b. by type of goal
,c. by ownership
d. order of priority - ....ANSWER...a. established time frames
When assisting the client in establishing realistic goals, the planner should help
define financial goals so that they are quantified in dollar amounts and have
established time frames instead of remaining general in nature. Goals may be
organized based on type, ownership, and priority but those are not ways of
quantifying them and making them more specific.
You would like to examine the Smiths' net worth as of Dec. 31, 20XX. You will
prepare
a. a retirement plan
b. a statement of financial position
c. an income replacement percentage
d. a cash flow statement - ....ANSWER...a. a statement of financial position
A statement of financial position shows a client's net worth, which is defined as
assets minus liabilities, as of a specific date. A cash flow statement shows a client's
net cash flow (or deficit) over a period of time (usually one year). Income
replacement percentage is another name for "replacement ratio" and is used as a
rough guide in determining the amount of income needed in retirement relative to
pre-retirement income.
All of the following may conflict with retirement goals except
a. emergency funding
b. college funding
c. wealth accumulation
d. the cost of caring for elderly parents - ....ANSWER...c. wealth accumulation
One of the purposes of lifelong wealth accumulation is to provide for a comfortable
retirement. Each of the other goals may conflict with retirement goals.
Industry standards typically consider expenses lasting beyond ___ to be long-term
liabilities.
a. one month
b. six months
c. one year
d. five years - ....ANSWER...c. one year
Which one of the following client goals is sufficiently specific for retirement planning
purposes?
a. "I'd like to retire with enough money to do what I want."
b. "We'd like to send our children to college."
c. "We want to travel."
d. "I want to accumulate $500,000 by December 2020." - ....ANSWER...d. I want to
accumulate $500,000 by December 2020."
, "I want to accumulate $500,000 by December 2020." is an adequately specific goal.
The planner will be able to analyze resources and determine if this goal is
achievable. The other goals listed are all vague and nonspecific.
Barb wants a retirement income of $5,000 at the beginning of each month for 25
years. If she is able to earn a return of 7% on invested assets, she needs $700,000
to fund her income. However, this does not include any inflation adjustment. By
incorporating a 3.5% inflation factor, what is Barb's approximate funding requirement
increase, if she wants to maintain the same purchasing power?
a. $100,000
b. $200,000
c. $300,000
d. $400,00 - ....ANSWER...c. $300,000
Instead of around $700,000, Barb will need slightly more than $1 million to maintain
an inflation-adjusted budget with equal purchasing power (using an inflation-adjusted
rate of 3.3816 compounded monthly); so the increase is approximately $300,000.
Set calculator to BEG mode, 12 payments per year, and C/ALL
Keystrokes:
25, shift, N
3.3816 I/YR
5000, +/-, PMT
PV Solution: $1,014,389.93
Which of the following types of information are important to gather from a client prior
to developing retirement planning recommendations?
I. his or her desired age of retirement
II. the client's assumption for the long-term rate of inflation
III. investments the client prefers not to use
IV. number of children client and spouse intend to have
a. I and II only
b. II and III only
c. I, III, and IV only
d. I, II, III, and IV - ....ANSWER...d. I, II, III, and IV
The age of retirement is required for determining investment and life insurance
needs. Economic assumptions need to be gathered from the client. While the
planner may help refine the assumption, it is nonetheless the client's assumption that
is needed. Planners also need to gather information on investments the client
absolutely does not want to include in an investment mix. The number of children a
couple may have provides an indication as to what may be needed for education
expenses, how children will affect family income, and creates the need for other
forms of planning such as trusts and guardianship issues.
AND CORRECT DETAILED ANSWERS WITH
RATIONALES (VERIFIED ANSWERS) |ALREADY
GRADED A+
During retirement, John wants to receive $50,000 at the end of each year for the rest
of his life. To calculate the amount that he will need to save, you need to solve for:
a. annuity due- set calculator at beginning
b. annuity due- set calculator at end
c. ordinary annuity- set calculator at beginning
d. ordinary annuity- set calculator at end - ....ANSWER...d. ordinary annuity- set
calculator at end
RATIONALE: You do need to set the calculator in END mode and solve for ordinary
annuity. If this were asking you to solve for an annuity due (where payments occur at
the beginning of the period), you would set calculator for BEG.
Mary wants to retire the first of next year. She wants to receive monthly retirement
income payments on the first day of each month. To solve the amount of capital
required to provide her the income she wants, you need to solve for
a. annuity due- set calculator at begin
b. annuity due- set calculator at end
c. ordinary annuity- set calculator at begin
d. ordinary annuity- set calculator at end - ....ANSWER...a. annuity due- set
calculator at begin
RATIONALE: To solve this problem, you would need to solve for annuity due, and
set the calculator at begin.
John wants to have $1 million in his retirement fund when he retires in 25 years.
Assuming that he earns 11% and inflation is at 3%, how much does John need to
save on a level basis at the end of each year?
a. $7,874
b. $8,740
c. $13,131
,d. $14,151 - ....ANSWER...b. $8,740
Set calculator to END mode, 1 payment per year, and C/ALL
Keystrokes:
1000000, FV
25, N
11 I/YR
PMT Solution: $8,740
Notice that the inflation rate does not come into play here because the question
notes that John will be saving on a level basis.
Mary wants to have a retirement income of $60,000 protected against 3% inflation.
She assumes that she will earn 9%, and wants to have the income for 30 years. How
much capital will be required to provide Mary this much income at the first of each
year? (Set your calculator for four decimal places.)
a. $616,419
b. $671,897
c. $841,589
d. $890,589 - ....ANSWER...d. $890,589
Set calculator to BEG mode, 1 payment per year, and C/ALL
Because the problem indicates that Mary want her income to be protected against
inflation you will use the inflation-adjusted rate of 5.8252% [((1.09 ÷ 1.03) - 1) × 100
= 5.8252].
Keystrokes:
60000, +/-, PMT
5.8252, I/YR
30, N
PV Solution: $890,589
Margaret needs an annual retirement income of $48,000 protected against 2%
inflation. You are to assume that she will earn 8%, and wants to have the income for
25 years. How much capital will be required to provide Margaret this much income at
the first of each year?
a. $512,389
b. $553,380
c. $620,521
d. $657,022 - ....ANSWER...d. $657,022
When gathering data during the retirement planning process, financial goals should
be quantified in dollar amounts and which of the following?
a. established time frames
b. by type of goal
,c. by ownership
d. order of priority - ....ANSWER...a. established time frames
When assisting the client in establishing realistic goals, the planner should help
define financial goals so that they are quantified in dollar amounts and have
established time frames instead of remaining general in nature. Goals may be
organized based on type, ownership, and priority but those are not ways of
quantifying them and making them more specific.
You would like to examine the Smiths' net worth as of Dec. 31, 20XX. You will
prepare
a. a retirement plan
b. a statement of financial position
c. an income replacement percentage
d. a cash flow statement - ....ANSWER...a. a statement of financial position
A statement of financial position shows a client's net worth, which is defined as
assets minus liabilities, as of a specific date. A cash flow statement shows a client's
net cash flow (or deficit) over a period of time (usually one year). Income
replacement percentage is another name for "replacement ratio" and is used as a
rough guide in determining the amount of income needed in retirement relative to
pre-retirement income.
All of the following may conflict with retirement goals except
a. emergency funding
b. college funding
c. wealth accumulation
d. the cost of caring for elderly parents - ....ANSWER...c. wealth accumulation
One of the purposes of lifelong wealth accumulation is to provide for a comfortable
retirement. Each of the other goals may conflict with retirement goals.
Industry standards typically consider expenses lasting beyond ___ to be long-term
liabilities.
a. one month
b. six months
c. one year
d. five years - ....ANSWER...c. one year
Which one of the following client goals is sufficiently specific for retirement planning
purposes?
a. "I'd like to retire with enough money to do what I want."
b. "We'd like to send our children to college."
c. "We want to travel."
d. "I want to accumulate $500,000 by December 2020." - ....ANSWER...d. I want to
accumulate $500,000 by December 2020."
, "I want to accumulate $500,000 by December 2020." is an adequately specific goal.
The planner will be able to analyze resources and determine if this goal is
achievable. The other goals listed are all vague and nonspecific.
Barb wants a retirement income of $5,000 at the beginning of each month for 25
years. If she is able to earn a return of 7% on invested assets, she needs $700,000
to fund her income. However, this does not include any inflation adjustment. By
incorporating a 3.5% inflation factor, what is Barb's approximate funding requirement
increase, if she wants to maintain the same purchasing power?
a. $100,000
b. $200,000
c. $300,000
d. $400,00 - ....ANSWER...c. $300,000
Instead of around $700,000, Barb will need slightly more than $1 million to maintain
an inflation-adjusted budget with equal purchasing power (using an inflation-adjusted
rate of 3.3816 compounded monthly); so the increase is approximately $300,000.
Set calculator to BEG mode, 12 payments per year, and C/ALL
Keystrokes:
25, shift, N
3.3816 I/YR
5000, +/-, PMT
PV Solution: $1,014,389.93
Which of the following types of information are important to gather from a client prior
to developing retirement planning recommendations?
I. his or her desired age of retirement
II. the client's assumption for the long-term rate of inflation
III. investments the client prefers not to use
IV. number of children client and spouse intend to have
a. I and II only
b. II and III only
c. I, III, and IV only
d. I, II, III, and IV - ....ANSWER...d. I, II, III, and IV
The age of retirement is required for determining investment and life insurance
needs. Economic assumptions need to be gathered from the client. While the
planner may help refine the assumption, it is nonetheless the client's assumption that
is needed. Planners also need to gather information on investments the client
absolutely does not want to include in an investment mix. The number of children a
couple may have provides an indication as to what may be needed for education
expenses, how children will affect family income, and creates the need for other
forms of planning such as trusts and guardianship issues.
